PURPOSE: To improve the time yield and space/time yield by continuously removing water formed in a reaction by azeotropic distillation with an inert org. solvent when a modified phenolic resin is prepd.

CONSTITUTION: Starting components used for the preparation of the modified phenolic resin are subjected to a condensation reaction under pressure in the presence of an inert org. solvent which forms an azeotrope with water. In the reaction, the water is continuously removed from the reaction mixture by azeotropic distillation. The reaction pressure is 1-20 bar, preferably 1.5-10 bar. The inert org. solvent is, e.g. hexane, decane, toluene or xylene. The modified phenolic resin is prepd. by reacting a natural resinic acid and/or an ethylenically unsatd. hydrocarbon resin with an aldehyde or phenol which can exist as resol or novolak.